THE COMMISSIONER OF INCOME-TAX-II vs. RAJESH GUPTHA

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT:- THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR.JUSTICE ASHOK MENON MONDAY, THE 12TH DAY OF NOVEMBER 2018 / 21ST KARTHIKA, 1940 I.T.A.No.68 of 2012 AGAINST THE ORDER IN I.T.A.NO.380/COCH/2009 DATED 25.07.2011 OF INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN [ASSESSMENT YEAR 2003-04] APPELLANT/RESPONDENT: THE COMMISSIONER OF INCOME-TAX-II, KOCHI. BY SRI.JOSE JOSEPH, STANDING COUNSEL FOR GOI (TAXES) RESPONDENT/APPELLANT: SHRI.RAJESH GUPTA, RR FINANCIAL SERVICES, G.RADHABHAI BUILDING, GOPALA PRABHU ROAD, COCHIN-35. BY ADVS. SRI.T.M.SREEDHARAN (SR.) SRI.V.P.NARAYANAN SMT.BOBY M.SEKHAR SMT.NISHA JOHN THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 12.11.2018, ALONG WITH ITA.79/2012, ITA.74/2012, ITA.78/2012, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA.No.68 of 2012 & - 2 - connected cases IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON MONDAY, THE 12TH DAY OF NOVEMBER 2018 / 21ST KARTHIKA, 1940 I.T.A.No.79 of 2012 AGAINST THE ORDER IN I.T.A.NO.383/COCH/2009 DATED 25.07.2011 OF INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN [ASSESSMENT YEAR 2006-07] APPELLANT/RESPONDENT: THE COMMISSIONER OF INCOME-TAX-II, KOCHI. BY ADVS. SRI.P.K.RAVINDRANATHA MENON, SENIOR COUNSEL FOR GOI (TAXES) SRI.JOSE JOSEPH, STANDING COUNSEL FOR GOI (TAXES) RESPONDENT/APPELLANT: SHRI.RAJESH GUPTA, RR FINANCIAL SERVICES, G.RADHABHAI BUILDING, GOPALA PRABHU ROAD, COCHIN-35. THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 12.11.2018, ALONG WITH ITA.74/2012, ITA.78/2012, ITA.68/2012, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA.No.68 of 2012 & - 3 - connected cases IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR.JUSTICE ASHOK MENON MONDAY, THE 12TH DAY OF NOVEMBER 2018 / 21ST KARTHIKA, 1940 I.T.A.No.74 of 2012 AGAINST THE ORDER IN I.T.A.NO.382/COCH/2009 DATED 25.07.2011 OF INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN [ASSESSMENT YEAR 2005-06] APPELLANT/RESPONDENT: THE COMMISSIONER OF INCOME-TAX-II, KOCHI. BY SRI.JOSE JOSEPH, STANDING COUNSEL FOR GOI (TAXES) RESPONDENT/APPELLANT: SHRI.RAJESH GUPTA, RR FINANCIAL SERVICES, G.RADHABHAI BUILDING, GOPALA PRABHU ROAD,KOCHI-35. BY ADVS. SRI.T.M.SREEDHARAN (SR.) SRI.V.P.NARAYANAN SMT.BOBY M.SEKHAR SMT.NISHA JOHN THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 12.11.2018, ALONG WITH ITA.79/2012, ITA.78/2012, ITA.68/2012, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA.No.68 of 2012 & - 4 - connected cases IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR.JUSTICE ASHOK MENON MONDAY, THE 12TH DAY OF NOVEMBER 2018 / 21ST KARTHIKA, 1940 No.78 of 2012 AGAINST THE ORDER IN I.T.A.NO.381/COCH/2009 DATED 25.07.2011 OF INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN [ASSESSMENT YEAR 2004-05] APPELLANT/RESPONDENT: THE COMMISSIONER OF INCOME TAX-II, KOCHI. BY ADVS. SRI.P.K.RAVINDRANATHA MENON, SR.COUNSEL FOR GOI (TAXES) SRI.JOSE JOSEPH, STANDING COUNSEL FOR GOI (TAXES) RESPONDENT/APPELLANT: SHRI.RAJESH GUPTA, RR FINANCIAL SERVICES, G.RADHABHAI BUILDING, GOPALA PRABHU ROAD, COCHIN-35. BY ADVS. SRI.T.M.SREEDHARAN (SR.) SRI.R.BHASKARA KRISHNAN SRI.V.P.NARAYANAN THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 12.11.2018, ALONG WITH ITA.79/2012, ITA.74/2012, ITA.68/2012, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA.No.68 of 2012 & - 5 - connected cases JUDGMENT [ ITA 68/2012, ITA.79/2012, ITA.74/2012, ITA.78/2012 ] Vinod Chandran,J. Pursuant to search under Section 132 of the Income Tax Act, 1961 [for brevity "IT Act"] conducted on 28.07.2007 as also recoveries made, the assessment with respect to the assessee who is carrying on financial services was completed under Section 153A read with Section 143(3). The assessment years were 2003-04, 2004-05, 2005-06 and 2006-07. The reliance placed was mainly on the entries made in a note-book recovered at the time of search as also the sworn statement under Section 132(4) of the Act. Additions were made with respect to a Chit carried on by the assessee, the rental income, loans availed by the assessee, i.e., and those availed from individuals as also from financial institutions. The assessee contended that the figures as disclosed in the note-book has different multipliers. With respect to the Chit, it was claimed that the multiplier applied could only be '100' and for rental income the multiplier was '1000'. On loans, it was contended that those from individuals the multiplier to be applied is '10000', while that from financial institutions the multiplier is '100000'.

ITA.No.68 of 2012 & - 6 - connected cases 2. Number of additions were made in all the years, some of which were modified in first appeal. The assessee was before the Tribunal, who directed the Assessing Officer to adopt the multiplier as contended by the assessee for all the transactions. The Tribunal found that there was absolutely no corroborative material with the Assessing Officer to apply the multiplier contrary to what was conceded by the assessee. In the present appeals, first 3 years are concerned with interest income as assessed from the Chit carried on by the assessee in the name of 'Bhaghyalakshmi'; being interest on the amounts received from the subscribers. The last year, being the year in which the search was conducted, the loans received from the individuals as also the financial institutions were added on for applying the multiplier of '100000'. 3. The questions of law arising in the appeals are re-framed by us as follows: (i) In the facts and circumstances of the case as also the figures seen from the note-book recovered without distinguishable marks and the sworn statement of the assessee, ought not the Tribunal have confirmed the additions made by the Assessing Officer? (ii) In the context of the evidence recovered by way of the note-book with figures, which were admitted to

ITA.No.68 of 2012 & - 7 - connected cases be undisclosed income surreptitiously recorded and the admissions made in the sworn statement, ought not the Tribunal have held that there need be no further corroborative material to be unearthed by the Assessing Officer? (iii) Considering the evidence recovered as also the admissions made under Section 132(4), ought not the Tribunal have held that the onus shifts to the assessee to prove the multiplier as applied to the different figures and are not the findings of the Tribunal perverse on the facts and circumstances of the case? 4. The materials recovered in the search being the note-book in which the entries were made is produced as Annexure-C in the appeals, at pages (2) and (3). There are figures evident from pages (2) and (3) of Annexure-C entered as against individuals, financial institutions, 'Draw' referring to the Chit as admitted by the assessee and rental income. We also notice that these four categories can be distinguished and it is very probable that there would have been different multipliers applied for these four categories. 5. As far as rental income is concerned, the assessee had proved that the income received from the Coimbatore property was Rs.65,000/- per month. There is no addition seen made in the assessment order with respect to

ITA.No.68 of 2012 & - 8 - connected cases that rental income. The multiplier of '1000' as conceded by the assessee on rental income was accepted. 6. The major income made addition of in all the years is with respect to the "DRAWS" indicated in the note-book. The assessee's contention was that there were 300 members with monthly subscription of Rs.100/- and each of the persons whose name is drawn in a month would be getting Rs.30000/- and would then be excluded from further draws. The number of draws remaining is shown as 243, indicating 57 monthly draws having already been carried out. Assessing Officer refused to accept the plea of the assessee that the figure shown as against “DRAW” has to be multiplied with '100'. The assessee had produced certain confirmations from the subscribers indicating that the multiplier is only '100'. However, one or two subscribers did not give a clear picture. The Tribunal found that since the majority of the subscribers confirmed the multiplier to be '100', the same has to be applied with respect to the amount shown against 'DRAW'. 7. We see from the figures as revealed from the note-book that the total amount payable is shown as “290/50”, which, by the figures as against the institution shown, even according to the assessee is the multiplier of '100000'. The Assessing Officer also found that the total payable would

ITA.No.68 of 2012 & - 9 - connected cases be Rs.2,90,50,000/-, including the unit values of 'Bhaghyalakshmi' draw. However, the Assessing Officer adopted '1000' as the multiplier for the draw. This is not supported by any evidence unearthed, The Draw is a distinguishable item and the assessee's version has to be accepted especially in the context of the confirmations produced before the A.O. In such circumstances, we are of the opinion that the assessee's contention that the multiplier was '100' is more probable, which also stands supported by the confirmations from the various subscribers. Assessing Officer having not obtained any other material to prove that the multiplier is '1000', the adoption of such multiplier can only be said to be a mere surmise or conjecture. We also notice that the figure shown against Draw is clearly distinguishable and a separate multiplier is also possible of easy identification. We, hence, uphold the order of the Tribunal to that extent. 8. Now we are concerned with the multiplier contended of '10000' for individual loans and '100000' against institutional loans. Admittedly the multiplier for institutional loans has to be applied at '100000'. We would have found the amounts as against individual loans also to be possible of a different multiplier, since they are clearly distinguishable from the institutional amounts but for the

ITA.No.68 of 2012 & - 10 - connected cases fact that the statement under Section 132(4) was contrary to such a different multiplier being applied for all such individual amounts. We notice from the order of the Assessing Officer that as against one Mohandas, the figure shown is '.2' and claim was that the multiplier is '10000' indicating a loan of Rs.2,000/-. However, there is a clear receipt of Rs.20,000/- under the letter head of Assam Kerala Roadways, a transport company whose proprietor is one Mohandas. This clearly disproves the contention of the assessee that the multiplier to be applied is only '10000' and not '100000'. The assessee on being confronted with this, had produced a letter from one Mohandas claiming that a loan of Rs.20,000/- was availed on 18.06.2005 and a sum of Rs.18,000/- was returned on the very next day, on 19.06.2005. However, there is nothing to indicate the refund and the figure entered was on 01.08.2005. 9. Further, as against advance to Kapil, the specific statement of the assessee under Section 132(4) was that he had given a loan of Rs.20,00,000/- to one Nagpal Builders. The figure shown in the note-book as against Kapil was '20.0' and, hence, the multiplier to be adopted is '100000'. The assessee had detracted his statement which, however, we find to be a self-serving one and not believable.

ITA.No.68 of 2012 & - 11 - connected cases We also notice that in the course of search the assessee was seen to have launched a prosecution under Section 138 of the Negotiable Instruments Act on the dishonour of a cheque of Rs.4,00,000/-. The contention of the assessee was that the loan was only of Rs.14,000/-. In such circumstances, we do not think any credence can be placed on the submission of the assessee that with respect to the individuals the multiplier to be applied is '10000' and that to the institutions '100000'. Even with respect to certain individuals, the assessee had stated on oath that the multiplier to be applied is '100000'. This has to be applied across the board to all the individuals, since there is no substantiating material produced; as confirmation from the individuals. The assessee has also no explanation as to how the multiplier can be applied differently when the figures and names are noted without any distinguishable marks. 10. We, in the above circumstances, answer the questions of law in favour of the Revenue and against the assessee; but, however, confirm the order of the Tribunal with respect to the Chit transaction directing the adoption of the multiplier as contended by the assessee. The Assessing Officer shall re-do the assessment in accordance with the directions herein above.

ITA.No.68 of 2012 & - 12 - connected cases The appeals would stand partly allowed. No costs. Sd/- K.VINOD CHANDRAN JUDGE Sd/- ASHOK MENON JUDGE Vku/-

ITA.No.68 of 2012 & - 13 - connected cases APPENDIX OF ITA 68/2012 APPELLANT'/ANNEXURES: ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER DATED 31.12.2007. ANNEXURE B TRUE COPY OF THE SWORN STATEMENT RECORDED ON 28.7.2005. ANNEXURE C TRUE COPY OF THE SEIZED DOCUMENT NO.MKG I. ANNEXURE D TRUE COPY OF THE ORDER U/S. 154 DATED 25.1.08. ANNEXURE E TRUE COPY OF THE ORDER U/S.154 DATD 7.7.08. ANNEXURE F TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 22.4.2009. ANNEXURE G TRUE COPY OF THE REASSESSMENT ORDER DATED 21.12.2009. ANNEXURE H TRUE COPY OF THE ORDER OF THE TRIBUNAL DATED 25.7.2011. ANNEXURE I COPY OF THE AHMADABAD BENCH'S ORDER REPORT IN 4 ITR 760. ANNEXURE J TRUE COPY OF THE SWORN STATEMENT RECORDED ON 28.7.2005. ANNEXURE K TRUE COPY OF THE INSTRUCTION NO.3/2011 DATED 9.2.2011.

ITA.No.68 of 2012 & - 14 - connected cases APPENDIX OF ITA 79/2012 APPELLANT'S ANNEXURES: ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER DATED 31.12.2007. ANNEXURE A1 TRUE COPY OF THE ORDER U/S. 154 DATED 7.7.08. ANNEXURE B TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 22.4.2009. ANNEXURE C TRUE COPY OF THE ORDER OF THE TRIBUNAL DATED 25.7.2011. ANNEXURE D TRUE COPY OF THE SEIZED DOCUMENT NO.MKG I ANNEXURE E TRUE COPY OF THE SWORN STATEMENT RECORDED ON 28.7.2005.

ITA.No.68 of 2012 & - 15 - connected cases APPENDIX OF ITA 74/2012 APPELLANT'S ANNEXURES: ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER DATED 31.12.2007. ANNEXURE B TRUE COY OF THE SWORN STATEMENT RECORDED ON 28.7.2005. ANNEXURE C TRUE COY OF THE SEIZED DOCUMENT NO.MKG I. ANNEXURE D TRUE COPY OF THE ORDER U/S. 154 DATED 25.1.08. ANNEXURE E TRUE COPY OF THE ORDER U/S. 154 DATED 7.7.08. ANNEXURE F TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 22.4.2009. ANNEXURE G TRUE COPY OF THE ORDER OF THE TRIBUNAL DATED 25.7.2011. ANNEXURE H TRUE COPY OF THE SWORN STATEMENT RECORDED ON 28.7.2005. ANNEXURE I TRUE COPY OF THE INSTRUCTION NO.3/2011 DATED 9.2.2011.

ITA.No.68 of 2012 & - 16 - connected cases APPENDIX OF ITA 78/2012 APPELLANT'S ANNEXURES: ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER DATED 31.12.2007. ANNEXURE B TRUE COPY OF THE SWORN STATEMENT RECORDED ON 28.7.2005. ANNEXURE C TRUE COPY OF THE SEIZED DOCUMENT NO.MKG I ANNEXURE D TRUE COPY OF THE ORDER U/S. 154 DATED 25.1.08. ANNEXURE E TRUE COPY OF THE ORDER U/S.154 DATED 7.7.08. ANNEXURE F TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 22.4.2009. ANNEXURE G TRUE COPY OF THE ORDER OF THE TRIBUNAL DATED 25.7.2011. ANNEXURE H TRUE COPY OF THE SWORN STATEMENT RECORDED ON 28.7.2005. ANNEXURE I TRUE COPY OF THE INSTRUCTION NO.3/2011 DATED 9.2.2011. Vku/- [true copy]